Spain's banks need under 20 billion euros in capital

The governor of the Bank of Spain, Miguel Ángel Fernández Ordóñez, said Monday the country's banks need "clearly" less than the 20 billion euros initially calculated to meet the tougher solvency ratios being introduced by the government.

The Cabinet on Friday approved a decree beefing up the solvency requirements of banks, which are now required to have minimum core capital of eight percent, up from six percent previously. In the case of unlisted banks heavily reliant on wholesale funding, the new minimum has been set at 10 percent.

"The origin of this figure is very simple," the governor said at a presentation of a report on Spain's savings banks. "The government asked us how much it could amount to, and the Bank of Spain said no more than 20 billion euros."

Sources in the banking sector calculate the country's lenders may need around 15 billion euros between private and public funding to meet the new requirements.

Fernández Ordóñez said the decree was "absolutely necessary" to address the problems facing Spanish banks, which were exacerbated by the euro-zone sovereign debt crisis.

All but five of Spain's banks passed the stress tests carried out on European lenders in July of last year.

"It is clear that circumstances have changed, above all because of the Irish sovereign debt crisis, and we need to put an end to the lack of confidence that exists about the Spanish financial system," Fernández Ordóñez said.

The Bank of Spain's report said the country's savings banks' combined exposure to the ailing real estate sector amounted to 217 billion euros as of the end of last year, of which potentially doubtful loans amounted to some 100 billion euros.

The central bank said that of the total exposure to the real estate sector, loans accounted for 173 billion euros and foreclosed property or assets received by way of repayment of debt the remaining 44 billion euros. In the fall of last year, the central bank calculated potential bad loans of the financial systems as a whole at 181 billion euros.

The report said that recognized losses in the loan portfolios of the savings banks, or cajas, have been fully covered by provisions.

On March 10, the Bank of Spain will publish the amount of capital required to meet the new solvency requirements. Banks will have until the end of September to meet the new rules, but in the case of cajas planning to transform themselves into commercial banks as a prior step to listing, the deadline is the end of March of next year.

Banks failing to obtain the financing they need from the private sector can avail themselves of the Orderly Bank Restructuring Fund (FROB).

The FROB was set up to aid the process of consolidation of the cajas, with the number of players in the sector reduced from 45 to 17. The FROB has so far provided 11.56 billion euros in funding, a little over 1 percent of Spain's GDP.

The deputy governor of the central bank, Javier Aríztegui, said the FROB currently has 7.5 billion euros available immediately to lend to banks that request it.

"We are in a very comfortable situation in terms of the liquidity we need," he said. "But if we need to ask the markets for more, there won't be a problem. The last time we tapped the market, we got double what we were asking for in two hours."